You may have read the recent blog post by my colleague, Guy Champniss, in which he laid out the theoretical case that consumers for the most part may not be making a conscious choice to (not) purchase energy efficient appliances, electronics and the like; rather they are picking products without knowing whether a particular model is best for them, either out of ambivalence or by default.
Our own research echoes other surveys that show that Americans (as well as Canadians, Brits, Germans, French, Italians and Spaniards) actually do think it’s important to buy efficient products.
Yet they end up picking models in a way that doesn’t factor in their aspiration to buy efficient. Why is that?
Complementing Guy’s behavioral science perspective, I’d like to share several related economic perspectives — and some hard data.
Rational inattention models are widely used in economics and have been applied to energy efficiency: Although a consumer may have a general preference to buy energy efficient products, estimating the value of future energy costs that could be avoided by purchasing an efficient appliance is beyond the abilities or motivation of most consumers and requires data that are not readily available, not to mention that the resulting energy (bill) savings per appliance may not be very large [1].
As a result, people may, quite rationally, choose to make their selection based on imperfect information, preventing them from acting on their preferences.
When taking energy efficiency into account is deemed “not worth the effort”, selecting the model to purchase becomes one of picking out of (economically rational) ambivalence.
Take the example of buying a television. Let’s assume that you are trying to decide which of two models to purchase. The energy information typically available would be whether the product is ENERGY STAR-qualified, the Federal Trade Commission energy label and, in the detailed product specs, the annual energy consumption. Energy efficiency information is nowhere to be found; you would have to figure out how you wanted to define the energy efficiency of a TV, collect the necessary data and then calculate it.
A huge undertaking – and for what? A 40" TV uses anywhere from roughly 50 to 150 kWh of electricity per year. So for the average American, the maximum bill savings would only be about $13 per year (100 kWh in electricity savings times a cost of electricity of 13 cents/kWh) — hard to justify investing time & effort in a major research project.
As a result, you may end up picking the inefficient TV that consumes 3X more than the most energy efficient model…
This is an unfortunate outcome for the consumer and the planet — and represents a market opportunity of staggering proportions that we can and must tackle.
…which leads to the second economic perspective, namely that appliance markets will be inefficient, as long as product energy efficiency is invisible in the marketplace. Under the status quo, even though a consumer may have a strong preference for purchasing an efficient product, they are unable to choose one, because the options are obscured.
Granted, consumers could opt to buy a product that’s eligible for a utility rebate or which carries the beloved ENERGY STAR label. But they cannot choose among the universe of rebated or labelled models based on their relative energy efficiency.
If market intransparency with respect to energy efficiency results in picking by default, what happens when the relative efficiency of each model is visible, and consumers are free to choose according to their preferences?
There is good reason to believe that consumers will respond. First of all, this is what consumers tell us.
Secondly, we have empirical data.
Enervee powers online marketplaces for utilities across the US, which play a critical market transformation function, as highlighted by the California Energy Commission [2]. The secret? The marketplaces empower shoppers to choose among all available models, based on their relative energy efficiency, which is conveyed by a daily-updated zero to 100 energy efficiency score.
What we find is that the most viewed products on the utility marktplaces are highly efficient. In fact, they are generally more efficient than the average rebated product [3].
Our data show that removing the need to pick on the energy efficiency dimension reveals a clear and consistent preference for efficiency above and beyond what the market currently marks as efficient (as signalled by a rebate).
Another source of data that illustrates the fundamental difference between picking and choosing products — and why this line of thinking is important in the context of market transformation efforts — are affiliate sales reports. For retailers with which we have affiliate program relationships, Enervee has access to affiliate reporting, which, in some cases, includes information sufficient to identify product models purchased immediately following a Marketplace visit.
When a Marketplace visitor clicks through to a retail offer at one of the participating retailers and makes a purchase via the retailer online shopping experience within a set period (typically 24 hours), without visiting any other website in between, the sale is recorded as an affiliate sale, which we consider to be a “marketplace-influenced” purchase. We compare the average characteristics of the purchased models against the distribution of models available to online Marketplace visitors, which we track on a daily basis. So, the baseline is the online choice set, and the marketplace-influenced purchase is the actual model purchased under the affiliate program.
Analysis of affiliate data for the US market for the first quarter of 2017 is shown in the chart above, where the baseline is assumed to be the average product with current online offers at the end of Q1 (in terms of annual energy consumption and price).
What we found is that the affiliate purchases use double digit less energy, while costing less at check-out, than the average product featured on the online Marketplace.
This data speaks strongly to the market transformation impact of marketplace, which empowers shoppers to make the efficient choices that they feel are important, rather than merely picking products blindly.
Notes
[1] Arquit Niederberger, A. & Champniss, G. Flip sides of the same coin? A simple efficiency score versus energy bill savings information to drive consumers to choose more energy-efficient products. Energy Efficiency (2017). https://doi.org/10.1007/s12053-017-9542-3
[2] California Existing Buildings Energy Efficiency Action Plan — 2016 Update, p. 25.
[3] The exception are the dryers, where only heat pump technology delivers significantly higher efficiency. These super-efficient models start at over $1,100, which is as much as $500 more than a product that scores 93, and only a handful of manufacturers currently offer models. Definitely a case for greasing the market by raising awareness that new, super-efficient technology is available and providing financial incentives to drive scale and bring down the price of the new technology.